Costly Returns

How Corporations Could Profit

from Inflating the Already High
Cost of Repairing the Nation’s
Crumbling Water and Sewer
Infrastructure
About Food & Water Watch
Food & Water Watch is a nonprofit consumer organization that works to ensure clean water and safe food. We challenge
the corporate control and abuse of our food and water resources by empowering people to take action and by transforming
the public consciousness about what we eat and drink. Food & Water Watch works with grassroots organizations around
the world to create an economically and environmentally viable future. Through research, public and policymaker educa-
tion, media, and lobbying, we advocate policies that guarantee safe, wholesome food produced in a humane and sustain-
able manner, and public, rather than private, control of water resources including oceans, rivers and groundwater.

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Copyright © June 2008 by Food & Water Watch. All rights reserved. This report can be viewed or downloaded at
www.foodandwaterwatch.org.
 Costly Returns
How Corporations Could Profit from
Inflating the Already High Cost of Repairing
the Nation’s Crumbling Water and Sewer
Infrastructure
Table of Contents
iv Executive Summary

1 Introduction

2 Key Findings

2 U.S. Water Infrastructure Background

3 Box: In Their Own Words: Equity Research Firm Boenning & Scattergood, Inc.
on Investor Owned Water Utilities

4 The Interconnectedness of Regulation and Profits

5 Box: Ways that Corporations Will Drive Up Infrastructure Costs

6 Table: Regulatory Environment of States with the Majority of Publicly Traded Water Utilities

7 Box: In Their Own Words: Equity Research Firm Boenning & Scattergood, Inc.
on State Regulation

8 Private Investors Shift Sights to Small Town Systems

9 Box: Why Corporations Oppose a Federal Trust Fund for Water Infrastructure

10 Full-Cost Pricing Sticks Ratepayers with Bigger Bills

10 Box: “Full-Cost Pricing” in the Water Industry

11 Box: The Frontier of Water Investing

12 Private Utilities are Inefficient and Waste Water

12 Table: Assessing EPA’s Four Pillars of Sustainable Infrastructure

14 Conclusions

15 Endnotes
Executive Summary
Although public utilities provide water to about 86 percent of people on community water systems, a private sector push
is on to change this. The corporate water barons are salivating at the prospect of profiting from the drinking water and
wastewater infrastructure crisis facing the United States.1 Already, U.S. cities endure 250,000 to 300,000 water main
breaks, lose one-fifth of their water through leaks and suffer 1.2 trillion gallons of wastewater spills each year.2,3 Americans
will spend up to $1 trillion by 2019 to upgrade and repair our 1.5 million miles of piping and the treatment plants to avoid
a public health crisis.4

Absent a needed increase in federal assistance, consumers and communities across the nation will see their bills continue
to climb as utilities make necessary repairs and upgrades. Yet, corporate advocates are deceitfully using the costliness of
those upgrades as ammunition to push elected officials into privatizing their water and sewer systems.

Instead of solving our water crisis, privatization pads the pockets of corporate water barons. A 2007 report compiling
newsletters from July 2006 to the end of 2007 by investment firm Boenning & Scattergood reveals that, thanks to some
fancy finance and accounting, private utilities tie higher earnings to increased costs. Corporations have a financial incen-
tive to oppose conservation, protection of drinking water sources and other policies and programs that would save money
and help offset the economic burden on communities across the nation. Wasted water drives up a company’s revenue,
which flows from people’s water bills.

The investor research firm states that a “high profile system failure would ‘help’ the situation.” Experts believe that if
“faulty underground infrastructure were to interrupt a major city’s water supply for an extended period,” the public would
be less resistant to rate hikes that benefit corporations.5

The Boenning & Scattergood report reveals that a future favorable to investor owned utilities is a future with poor con-
sumer protections, a limited or non-existent federal safety net for low income communities and large infrastructure in-
vestments built to maximize profit, not the interest of the environment or the public. In fact, the prophets of privatization
speak out against a federal trust fund for our water and sewer systems. In their view, “every dollar that the federal govern-
ment injects into local water systems is a dollar that will not go into someone’s rate base…”6 That “someone” is a water
corporation and the “rate base” is revenue from community bills.

Federal funding would reduce financing costs, allow small municipal systems to fend off privatization and ease the finan-
cial burden on families across the nation. Indeed, when Congress passes a federal trust fund, it should be available only to
the publicly owned and operated utilities that serve most of the nation’s population.

iv
Introduction
Every month, more than one billion gallons of water seep
from a deeply buried, 70-year-old tunnel – the Delaware
Aqueduct – that carries water to New York City. In a town
two hours north, some of that leakage has formed a football
field-sized marsh that floods basements and turns yards
into swamps.7
But that’s a mere drop in our big bucket of water woes.
With 250,000 to 300,000 water main breaks each year,
many other cities – from Chicago to Denver – also are
suffering the consequences of aging infrastructure.8 In
total, drinking water systems waste one-fifth of their water
through leaks, and sewer systems spill an estimated 1.2 tril-
lion gallons of wastewater through overflows.9 And things
are only expected to grow worse over the next few years.
Unfortunately, when it comes to solutions, cities are finding
that the federal assistance they’ve traditionally relied on is
drying up, leaving them to face these expensive problems
alone. As a consequence, households around the country
will have to pay an average of $10,000 over the next three
decades to repair their water systems.10
Even after accounting for those increased water and sewer
rates, many utilities just do not have enough money to pay
the enormous costs of these necessary improvements. So
it shouldn’t come as a surprise that communities need and
want, by an overwhelming margin of six to one, a national
trust fund to repair, renovate and rejuvenate our water
systems.11
Yet, incredibly, instead of supporting the federal funding
that their constituents want, several elected officials, in-
cluding the governor of California, are pushing the private
sector as the solution to our infrastructure crisis.
They argue that corporations can more easily access capital
to finance improvements and offer cost-reducing efficien-
cies for cash-strapped communities. But it’s not true, as
many cities that have had nightmarish experiences will
attest. Maintenance problems in Atlanta and sewage spills
in Milwaukee, for example, suggest that local governments
should approach privatization with caution.
Indeed, the most worrisome aspect of private financing is
how corporations actually profit: Their income is a percent-
age of the amount they spend on infrastructure, providing
companies with a strong financial incentive to unnecessar-
ily drive up the already high improvement costs – forcing
communities to pick up the bloated tab. In particular, they
should be concerned about the excessive price of obtain-
ing water from desalination, sewage water reuse and other
dangerous and environmentally destructive technologies
that many private utilities are actively pursuing.
Often, the touted efficiencies of the private sector amount
to little more than downsizing the workforce and cutting
employee benefits – two actions that surely would work
against timely and effective completion of improvement
projects on aging systems. Besides, public utility opera-
tors have already picked up and implemented the other
efficiency measures attributed to the private sector. For
example, they’ve effectively used fewer treatment chemicals
to achieve the same level of water purity.
In fact, because of the public sector’s surging efficiency, at
least three cities – Houston, Texas and Petaluma and Fair-
field-Suisun, Calif. – terminated their contracts with private
water companies for certain services and plants; the cities
claimed cost savings of 8 percent to 15 percent. “There’s a
feeling that the public sector has adopted a lot of the man-
agement practices of the private sector,” said Michael Ban,
the director of the water department in Petaluma, where
 Costly Returns

Breakdown of drinking water and sewer

infrastructure needs (2003-2023)
Because of the public sector‘s
surging efficiency, at least
three cities – Houston, Texas
and Petaluma and Fairfield- Other
Suisun, Calif. – terminated 23%

their contracts with private Piping

52%
water companies; the cities Treatment
claimed cost savings of 8 25%

percent to 15 percent.

the sewer system had been privately operated for nearly 30

years. “We’ve learned.”12
Sources: Environmental Protection Agency 2005; Environmental Protection Agency 2008.

Furthermore, both of those California cities concluded

that they would achieve these savings while offering better
employee compensation packages. Such benefits attract the
skilled operators who improve service and keep systems
in environmental compliance from a dwindling pool of
qualified applicants. And both cities recognized that, unlike
corporate income, employee salaries and wages stay in the
community and benefit the local economy.13,14
In addition, private financing is almost always more ex-
pensive than the public sector. The latter can sell bonds or
take out a loan at a lower interest rate than is available to
corporations. Along with higher interest payments, private
utilities force communities to pay the additional costs of
taxes, profits and regulatory fees.
Key Findings
U.S. Water Infrastructure Background
Our nation’s drinking water and sewer infrastructure spans
almost 1.5 million miles of piping, including about 640,000
miles of sewer lines.25 This network of pipes carrying life-
giving water in and taking waste out sustains our society,
economy and way of life. But our water systems are wearing
out and in need of repair.
Already, water and wastewater utilities will face consider-
able repair and replacement costs over the next few de-
cades.26 The Environmental Protection Agency estimates
that the cost of maintaining and improving water and sewer
infrastructure will be more than $600 billion through
2019.27 Around half of this is needed to replace piping and
to repair aging distribution and conveyance systems.28,29

• Private water companies want to increase, not decrease,

consumers’ water and sewer bills.
Infrastructure needs (2000-2019)
• Corporations oppose efforts to establish a federal trust 500
Infrastructure needs ($ billion)

fund for clean drinking water and wastewater infra- 450 High case: $450b High case: $446b

structure because it would decrease their profits. 400

Estimate: $388b

• Privatization of water and sewer systems worsens our 350

Low case: $331b
current infrastructure problems and costs more money. 300
Estimate: $274b
250
• The private sector has little incentive to implement wa-
ter conservation because the companies’ profits depend 200

on how much water is sold. 150 Low case: $154b

100
Wastewater Drinking water
Source Environmental Protection Agency 2002

2
 Food & Water Watch
In Their Own Words: Equity Research Firm Boenning & Scattergood, Inc.
on Investor Owned Water Utilities
“A high-profile system failure would ‘help’ the situation
by helping to wake the public from its current ‘Out of
Sight, Out of Mind’ complacency with regard to water in-
frastructure and increasing the urgency of water-related
projects relative to other areas of public spending. Even
in the absence of such a disaster, however, pricing will
likely continue to gradually move closer to reflecting the
full cost borne by water providers, and the result will be
a continuation of the trend toward more sizeable rate
rewards by regulators, and greater acceptance of such
rate hikes by customers.”15
“[T]he investment case for [investor owned utilities] is
predicated on two key growth drivers, rate base expan-
sion and ongoing industry consolidation, and federal
funding for water system improvements is an incremen-
tal negative for both. . . In terms of rate base, theoreti-
cally, every dollar that the federal government injects
into local water systems is a dollar that will not go into
someone’s rate base (either now or several years hence,
when the struggling system is eventually forced to sell to
an IOU, which makes the investment and files for rate
relief).”16
“For both utilities and providers of related equipment
& technology, continued growth in water prices is an
important sign that the industry is on its way toward
realizing its investment potential.”17
“[T]he rehabilitation of aging [waste-water] systems
should provide a growing source of demand for years to
come.”18
“The inevitable consolidation process not only provides
an additional source of growth for those investor owned
utilities making the strategic decision to enter the waste-
Many pipelines collectively will reach the end of their
usefulness over the next 20 to 30 years,30 and one-third of
water utilities already have at least 20 percent of their pipe-
lines nearing the end of their useful lives.31
But the nation’s water worries don’t stop with leaking pipes.
Every day, scientists are learning more about the chemicals
that can contaminate drinking water. As new information
becomes available, and as the treatment technology be-
comes practical for widespread utility use, EPA adjusts the
water quality standards that utilities must meet to ensure
that people are not exposed to harmful levels of these sub-
stances.
water business, but also helps to enable the considerable
infrastructure spending that experts believe is neces-
sary.”19
“Full-Cost pricing is vital to the water sector realizing its
long term investment potential, and recent trends indi-
cate the industry is moving in the right direction.”20
“[T]he wastewater market is highly fragmented, with
more than 16,000 independent systems nationwide,
and coupled with less austere pricing regulation (most
WW utilities do not operate under the ‘regulated return’
framework), this has lead some utilities executives to
make wastewater a focus of their corporate growth strat-
egy.”21
“With major spending increases on the way and recent
rate case activity pointing toward a more favorable fund-
ing environment, companies serving the water infra-
structure market are poised to benefit from the impend-
ing swell in spending.”22
“While some Federal (sic) spending is likely and particu-
larly troubled systems may receive targeted state-level
assistance, the majority of the spending required to
renovate the nation’s water infrastructure will come in
the form of increased rates.”23
“Though protesters have had a few high-profile suc-
cesses – such as causing problems for European water
behemoth RWE’s California operation as profiled in a
front-page Wall Street Journal feature article (June 26,
2006) – the financial pressures facing small systems are
real, and sale to a larger entity is often the only way to
keep such systems afloat.”24
The number of regulated contaminants has grown by nearly
five times since the Safe Drinking Water Act was first intro-
duced in 1976, while the allowable levels of many pollutants
have decreased.32
Water utilities need more effective treatment technology
to adhere to these increasingly demanding water quality
rules. Making such upgrades constitutes one-quarter of
needed infrastructure spending for water and wastewater
utilities.33,34 Unlike piping that can be installed piecemeal,
treatment facilities are replaced all at once and require a lot
of money in a short period of time.35 This places a great bur-
den on under-funded water systems.
3
 Costly Returns

Cook claims federal support would reduce water prices,

Average Annual Water and Sewer Bills
350
which would be misleading because people would not
understand the full cost of their water. But the basis of any
300 aversion to federal funding probably has more to do with
the effects on the bottom line.
250
First data point
Price (2007$)

200 On a community level, that translates into higher and high-

er water and sewer bills. In 2006 alone, water and waste-
150 Water Prices
Sewer Prices
water prices grew by more than 3 percent over the rate of
100
inflation in North America — more than any other region
in the world.40 Annual household sewer bills grew by more
50 than 50 percent from 1985 to 2006, according to a survey
Sources: RFC and American Water Works Association 2007;
National Association of Clean Water Agencies 2008
by the National Association of Clean Water Agencies. In to-
0
day’s dollars, single-family households are annually paying
$100 more for sewer service now than they did in 1985.41

In total, the cost of upgrading and repairing water and For corporations, high prices are “conducive to expanding
sewer systems could be nearly $1 trillion over the 20-year earnings.”42 But for communities, they can be a consider-
period through 2019.36 At the same time, the United States able financial burden.
is failing to provide substantial federal funding for its vital
water and wastewater infrastructure. Just since 2001, The Interconnectedness of
federal funding for drinking and wastewater utilities has Regulation and Profits
declined 24 percent.37
While 44 states provide some oversight of private drinking
A federal trust fund for water and wastewater would help water utilities and 32 oversee wastewater (some states only
to make these upgrades and keep prices affordable. But the regulate utilities of a certain size or income,43 and other
private sector applauds this dearth of government support states also oversee municipally owned systems contracted
and opposes any effort to increase it, even if funds would be out to private companies44), potentially averting exploit-
available to both public and private utilities. According to ative rates that might otherwise occur, weak state public
Boenning & Scattergood, “federal funding for water system utilities commissions provide motivation for water and
improvements is an incremental negative” for private utili- wastewater utilities to be inefficient. Regulators typically
ties.38 set prices so that a water company recovers all its expenses
and a certain percentage of profit. Private utilities often like
“There are those that are advocating before Congress for a the world of regulation because it offers them stable and
large grant program financed through new dedicated taxes reliable profits.
going into a ‘water trust fund,’” said Peter Cook, the execu-
tive director of the National Association of Water Compa- A company’s gross profit is a portion, usually around 10
nies. “This is the wrong answer.”39 percent, of the total amount it spends on the construction
or operation of a utility.45 The community’s residents pay

From 2006 to 2007,

investment firms put $105
billion into infrastructure
funds, which have the express
purpose of making profits
that “will keep investors
happy.”

4

For private utilities, higher infrastructure costs
mean higher profits
$120
$100
Gross Profit
A rate of return of 10 percent
$80
$60
$40
$20
$0
$0 $200 $400 $600
Infrastructure Costs
back all the expenses and the corporate income through
their water or wastewater bills.
Because its profits are a percentage of expenditure, a
company increases them by spending more money on the
system. Private companies have a financial incentive to
unnecessarily inflate the costs of water and wastewater
systems.
For example, consider a small water system that needs
new treatment equipment. A regulated company owns and
operates the utility and will receive a profit of 10 percent of
the amount it spends on the equipment. If it spends $1,000
on inexpensive treatment technology, its profits would be
$100. And the community would pay an additional $1,100
through their water bills. But if the company buys a pricey
treatment system for $5,000, its profits would be $500.
And the community would pay an additional $5,500.
The incentive for inefficiency can also be present when a lo-
cal government retains ownership of a water or wastewater
system but privatizes its design, construction and opera-
tion. Some deals require a company to finance the initial
construction costs that are then recovered, along with
corporate profits, through its operation of the system and
collection of household and other user bills. The company’s
percent of profit is usually determined in contract nego-
tiations and is often based on how much the corporation
spends to build, repair or operate the system.
This method of regulating private utilities and setting their
rates has created a lucrative market, one laden with inef-
ficiencies.
Indeed, “investing in infrastructure is all the rage,” ac-
cording to a feature article in the magazine The Banker.
Investment banks such as Goldman Sachs, Morgan Stanley
and Citigroup, and private equity firms such as Carlyle
Group and Kohlberg Kravis Roberts, have jumped into the
water and wastewater utility game.46 From mid-2006 to
Food & Water Watch
Ways that Corporations Will Drive Up
Infrastructure Costs
There are predominately two types of new water sup-
plies that corporations are using to drive up costs and
their stockholder profits:
Desalination removes salt from seawater and other
salty water to make water suitable for drinking.
According to Boenning & Scattergood, “Overall, desalina-
$800 $1,000 tion represents one of the most compelling long-term
growth areas within the broadly defined ‘water industry.’”
Industry insiders expect major growth in desalination.112
Some of the big desalination players include General
Electric, Siemens AG and Veolia.113
California, in particular, has planned massive seawater
desalination development with 20 projects proposed
along its coastline. Even though these plants would
expand the state’s desalination production by 70 times,
water desalination would supply only 6 percent of the
state’s urban water needs.114 And desalination is more
expensive than traditional water treatment and conser-
vation practices.115 In California, not including its expen-
sive construction and distribution, even the most efficient
desalination plant will produce water at a cost per 1,000
gallons that is at least 50 percent higher than the aver-
age price currently charged by water utilities.116,117
Long distance pipelines transport water from water-
rich areas to dry areas.
The water pipeline industry is also poised to do well in
2008.118 Even desalination systems will require pipelines
to transport water from coastlines to cities.119 And sev-
eral private utilities are planning costly projects.
For example, in Lexington, KY, American Water – the
largest publicly traded U.S. water corporation – is refus-
ing to put a price cap on a new treatment plant and
31-mile pipeline, expected to cost $160 million.120 The
Attorney General’s office considered such a rejection “a
‘deal-breaker.’” Opponents argued that the state’s utili-
ties commission cannot require private utilities to cap
costs,121 and it approved the project, which will increase
household bills by nearly 50 percent.122
“When those higher water bills arrive, people will wish
that someone had made Kentucky American do more
about conservation years go,” conjectured the editors of
the Lexington Herald-Leader. “A government-owned util-
ity has a much stronger incentive to keep rates down.”123
mid-2007, investment firms put $105 billion into infra-
structure funds, which have the express purpose of making
profits that “will keep investors happy.”47
5
 Costly Returns

Regulatory Environment of States with the Majority of Publicly Traded Water Utilities

Temporary
Takeover incentives
Length of surcharges
Rate of (financial rewards
State rate case (rate increases
return for acquiring new
process that don’t require
systems)
regulator approval)

Yes, allowed to increase

Yes, first to allow it.
Pennsylvania 9 months 10.25% - 10.75% profit when taking on
(up to 5% of total billing)
troubled system

Yes (up to 7.5% of total

Delaware 7 months 10% - 10.5% No
billing)

Yes (up to 7.5% of total

Connecticut 6 months 9.75% - 10.25% Yes
billing)

California 9 to 12 months 9.75% - 10.25% Yes (forthcoming) Yes (forthcoming)

Texas 1 to 2 years 10% - 12% No No

New Jersey 9 months 9.5% - 10% No (under consideration) No

Based on a report by Boenning & Scattergood143

Boenning & Scattergood, the oldest independent invest-
ment firm in the U.S. Mid-Atlantic region, encourages in-
vestment in the water utility industry as a “defensive haven”
during the current economic downturn.48
Involved in business with water corporations, the firm ar-
gues that private utilities offer “steady, consistent growth”
and “relative certainty” of profits.49 Joseph Sorce, the direc-
tor of Fitch Ratings, agrees: “The water business is low-risk
with stable and predictable cash flows.”50
In fact, after accounting for the low risk level, the average
return of water companies is more than twice that of the
pharmaceutical industry and nearly three times that of the
construction and engineering industries.51 Over the last
20 years, the returns have been higher for the water sector
than for Exxon, Wal-Mart and Home Depot.52
When corporations want to increase water rates – and thus
profits – they must seek regulatory approval. In general,
regulators have gone along with this. Regulators also are
helping corporate profits by shortening the time it takes
to process rate cases, possibly reducing public input in the
process, and by encouraging consolidation with financial
incentives to take over other utilities.53 Companies are
even being granted higher profit margins and permission
to increase rates without a public approval process, using
temporary infrastructure improvement surcharges.54,55
Of course, each regulatory commission is different, and
they all depend on the laws in their particular state. Based
on all of the aforementioned trends, Boenning & Scat-
tergood has ranked the regulatory environment in the six
states that have the majority of publicly traded water util-
ity companies. The states are listed from most attractive
to least attractive for “generat[ing] earnings growth and
maximiz[ing] shareholder value.”56 Another way to look at
the ranking is from less to more public oversight.
The regulatory environment in New Jersey is the most pro-
tective of the public’s interests – something corporations
see as a hindrance to their profits. Regulators in New Jersey
do not allow private utilities to increase rates without a
trial, and they do not encourage privatization by allowing
corporations to charge extra high rates after taking over a
disadvantaged system.

6
 Food & Water Watch

California is becoming increasingly corporate friendly –

even beating out George Bush’s home state of Texas – be-
cause regulation is weakening under the Water Action Plan
of the California Public Utilities Commission.57

Although California is just beginning to give water corpo-

rations special privileges that increase their profits, this is
nothing new in Pennsylvania. The state has a long history of
friendly relations between company executives and the of-
ficials who regulate them. Boenning & Scattergood find that
Pennsylvania’s regulatory climate is the best for companies
because the state considers corporate interests equal to
community concerns: “In sum, Pennsylvania’s well de-
signed regulatory system positions the interests of investor
owned utilities and their shareholders alongside — rather
than subordinate to — those of other key stakeholders.”58

In Their Own Words: Equity Research Firm Boenning & Scattergood, Inc.
on State Regulation
Boenning & Scattergood’s Water Digest directly connects a state’s regulatory oversight to the profits of any water
utility operating within that state, identifying states with regulatory regimes friendly to private ownership and man-
agement of water.

Much financial woe is in store for people across the country unless consumer-friendly changes are made to regula-
tion that, at best, allows and, at worst, encourages wastewater companies to put profits ahead of the public interest.
Indeed, we capture here quotations by an investment firm bragging about “ratepayers” and “stakeholders,” both of
which are code words for the public and consumers, subsidizing private profit.

Pennsylvania
“Rate cases rarely exceed nine months in duration, while
granted rates of return regularly top 10.5% - a level
rarely matched in other states.”
“Pennsylvania pioneered the trend of allowing utilities to
recover major infrastructure investments via temporary
‘surcharges.’”
“[M]ajor regulated utilities in the state are unanimous
in declaring that industry/regulator relations are ami-
cable.”
“Pennsylvania’s ‘regulatory system positions the inter-
ests of investor owned utilities and their shareholders
alongside – rather than subordinate to – those of other
key stakeholders.’ ”
Delaware
“Boasting prompt rate cases and attractive granted rates
of return on equity, Delaware’s progressive regulatory
climate is not far behind that of Pennsylvania.”
Connecticut
“Connecticut utilities enjoy one of the nation’s most
expeditious regulatory environments, and this prompt
handling of rate relief requests helps utilities to minimize
the impact of regulatory lag on realized returns.”
“Furthermore, Connecticut’s [Department of Public Util-
ity Control] has in place incentives for larger systems to
purchase smaller, troubled systems, encouraging con-
solidation among the state’s roughly 500 distinct water
systems.”
California
“Still, many grassroots California organizations exhibit
strident resistance to private ownership of water assets,
and these groups have the potential to hold back prog-
ress in improving the state’s regulatory climate.”
From a report by Boenning & Scattergood144

7
 Costly Returns
Given this, it should come as no surprise that Pennsylva-
nia is home to Aqua America, the second largest publicly
traded U.S. water company.59 In fact, Aqua America, which
still generates 55 percent of its revenue in the state, is even
being given a voice in government policies. Gov. Edward
Rendell has appointed the president of the company to the
30-member Sustainable Water Infrastructure Task Force
that will advise the governor on addressing the state’s infra-
structure needs. The president of Pennsylvania American
Water, subsidiary of American Water, the largest U.S. water
corporation, also serves on the task force.60
Private Investors Shift Sights to
Small Town Systems
Ten years ago, private water utilities enthusiastically bid to
take over water systems of major U.S. cities, such as Atlanta
and New Orleans. However, high profile failures, public op-
position and increased scrutiny by elected officials contrib-
uted to a shift away from big cities and toward easier prey.
Investors believe they can cash in on the infrastructure
crisis by taking over the thousands of small municipal utili-
ties and local mom-and-pop operations that cannot afford
the growing cost of making needed repairs and updates.
Corporations pursue these aging systems – including the
costly improvements that go along with them – not out of
good will for the community, but because of their “mandate
to grow and to maximize shareholder value.”61
Aqua America is just one of several companies actively
seeking to buy up water and sewer systems. Even outside of
“When those higher water
bills arrive, people will wish
that someone had made
Kentucky American do more
about conservation years
go,” conjectured the editors
of the Lexington Herald-
Leader. “A government-
owned utility has a much
stronger incentive to keep
rates down.”
8
Pennsylvania, Aqua America enjoys “cordial relations with
its regulators.”62 With these “strong regulatory relation-
ships,” and “this important constituency in its corner,”63
Aqua America has become the industry leader in taking
over and consolidating water systems through a process
that can increase costs, hikes up families’ water bills and
results in more corporate profits.64
In the words of Boenning & Scattergood: “Utility boards
are a powerful force in the water utility industry, and their
influence is felt in nearly every aspect of the business – ac-
quisitions being no exception.”65
After companies take over a water system, they file for rate
increases to recover the costs of the transaction and sys-
tem improvements and maintenance – having friends on
the utilities commission could only help speed along the
process and get a greater amount approved – and then they
consolidate systems and reduce costs. In this way, corpora-
tions use high initial costs to inflate people’s water bills,
and then they increase efficiency and cost savings to further
maximize their earnings. People end up paying for costs
that no longer exist, but the payments augment the com-
pany’s profits.
This is exactly what a retired accountant for ExxonMobil
accused Aqua America of doing in North Carolina when the
company purchased his community’s water system. Ad-
dressing the North Carolina Utilities Commission during a
trial to establish water rates for Aqua’s subsidiary Heater
Utilities, the accountant said the company’s strategy was
to seek rate increases ahead of cost savings, so the custom-
ers wouldn’t see any financial advantages. Meanwhile, “the
stockholders of Aqua benefit from both the rate increase
and the cost savings.”66
During the same trial, Aqua was accused of inflating ex-
penses by electing to report a stock transfer that increased
the value of Heater by $2.5 million. This election would
have increased the revenue that Aqua was seeking to re-
 Food & Water Watch
cover through rate increases by more than $300,000. The
utilities commission agreed with the public that
“[w]hile taking this election may benefit Aqua’s stockhold-
ers, it adversely impacts Heater’s ratepayers.”67
Local governments usually do not want to lose public
control of their water and wastewater systems, and officials
face “strident resistance” when they consider selling their
systems to a private utility, according to Boenning & Scat-
tergood.68 Since 1986, EPA has approved only 10 sales of
federally funded public wastewater utilities, and there have
been few, if any, substantial sales of publicly-owned drink-
ing water systems to private companies.69
Even Boenning & Scattergood admit that the public has had
a “few high-profile successes” in interfering with the priva-
tization of their water system, “such as causing problems
for European water behemoth RWE’s California opera-
tion.”70
Indeed, the residents of Felton, Calif., passed a referendum
to raise $11 million in bonds to purchase its water system,
but RWE refused to sell it to the town. The corporation sold
some 40 percent of its U.S. subsidiary – America Water –
in the U.S. stock market in April 2008. “If people are inter-
ested in buying into their water supply, they can buy shares
in American Water after the IPO [initial public offering],”
said Harry Roels, then chief executive of RWE.71
As a result, the town had to invoke eminent domain in its
ongoing efforts to bring the system under public control.
The company gave up the legal battle in March 2008,
believing it had driven up the value of the system to a point
where the town could no longer afford to buy it.72 This
haughty perspective, however, was short lived. Four days
before a jury would determine the purchase price, the com-
pany settled and sold the system for $10.5 million,73 more
than halving what it originally claimed was the system’s fair
market value.74
“This is a huge victory for the citizens of Felton,” said Jim
Mosher, who headed up the legal battle of citizen group
Felton FLOW, “and should inspire other communities to
challenge private water utilities that are extorting huge,
unjustified rate increases.”75
Despite similar successes in many other communities –
Cave Creek, Ariz.; Fort Wayne, Ind. and Knox, Penn., to
name a few76 – many industry analysts predict local govern-
ments will lose hold of their public water systems as repair
and upgrade costs continue to mount.77
While the privatization of drinking water systems is the cur-
rent hot trend, industry experts predict that sewer privati-
zation will soon follow.78 Large companies, including Aqua
America, are already actively expanding into this sector.79
Why Corporations Oppose A Federal
Trust Fund for Water Infrastructure
A federal trust fund for water and wastewater would
help make necessary water infrastructure upgrades and
keep prices affordable. However, corporations oppose it
for two primary reasons:
1. Reduced costs and water prices deflate corporate
profits.
Investor owned utilities receive profit based on how
much money they spend on infrastructure, and they
cannot profit from what is given to them.137 Federal
funding decreases how much private utilities can
spend and recover through water prices and thus how
much they can receive as profit.
2. Assistance to small public utilities strengthens
resistance to corporate takeovers.138
Water companies also oppose what they call a
“bail-out” for poor water and wastewater systems.139
Without public funding, the infrastructure crisis will
force many small public utilities to go under and sell
their system to private companies. In these sales, the
private utility would have the upper hand because of
the great need of the local government.
Many municipal systems resist being bought by large
water corporations. Boenning & Scattergood admits
that many communities do not want their water sold
for profit: “In fact, many local stakeholders [also
called community members] bristle at the very con-
cept of their water system becoming a ‘private, for
profit’ enterprise.”140
Therefore, companies usually only acquire public utili-
ties that are cash-strapped and under hardship: “Such
‘distress’ purchases are a key driver of the industry’s
consolidation push.”141 Federal funding would allow
public utilities to become viable and operate their sys-
tems in the interests of the public. With such support,
the only acquisitions would be under more evenhand-
ed and balanced terms, which do not bode as well for
corporate profits.
For the same reason, companies dislike any federal
assistance that would allow local governments to re-
tain ownership of their systems. As another of its four
pillars of sustainable infrastructure, EPA has proposed
asset management to help small utilities to effectively
manage their systems and remain viable. According to
Boenning & Scattergood, this assistance would allow
small public utilities to avoid the “breaking point” of
incredible hardships that would have forced the sale
of their systems and thus to “avert takeover” by a
private company.142
9
 Costly Returns

Public wastewater systems offer “considerable opportuni-
ties” for private investors, according to Boenning & Scat-
tergood, partly due to the “lower level of political sensitivity
to rate increases and privatization.”80 The firm believes that
the public cares less about wastewater than about drinking
water because it is not “ingested water.”81
For corporations, another attractive feature of wastewater
is its relatively low level of regulation. This is a key differ-
ence between water and wastewater systems: Many states
do not oversee the prices that companies charge for sewer
service. While 12 percent of states do not regulate for-profit
drinking water utilities, three times as many, 36 percent, do
not regulate wastewater companies.82
Sometimes cities within these states provide regulation, but
often companies just have “greater flexibility in pricing”
that can increase shareholder profits above and beyond that
allowed by regulatory commissions.83
Full-Cost Pricing Sticks Ratepayers
with Bigger Bills
As households pay higher water and wastewater prices,
utilities see their income grow. In 2007, North America was
the only region in the world where water utilities brought
in more money from water bills than they spent to deliver
the water.84 Worldwide, water utilities charged prices that
on average pay only half of their costs.85 The rest is paid
by outside funding, including government support that
reduces the financial burden on households.
Because U.S. water and wastewater utilities have little fed-
eral funding, the Environmental Protection Agency advises
utilities to set water and wastewater prices high enough to
ensure that user bills pay the full cost of building, operating
and managing their systems. This is called full cost pric-
ing.86
Already, 70 percent of drinking water utilities and 60
percent of wastewater utilities rely on local bills to pay the
entire cost of providing service.87 Yet, they are still failing
to meet their infrastructure needs. If public drinking water
and wastewater systems continue their current spending
practices, they will neglect $225 billion of infrastructure
needs from 2000 to 2019, according to EPA estimates.88
To pay for most of this gap, EPA recommends that utilities
annually increase their spending by 3 percent over the rate
of inflation.89 Water and wastewater prices did increase by
this amount in 2007,90 so utilities should have had the extra
funding to meet this goal and pay for more improvements.
Higher prices, however, do not necessarily mean that utili-
ties can spend more on their system because they are simul-
taneously losing other funding sources – federal grants and
loans, for instance – that have traditionally supplemented
revenue from community bills. That means communities
may be paying higher prices to offset the loss of government
assistance, not to make necessary improvements to their
water and sewer systems.
Adhering to the principle of full cost pricing may be a
reason that many utilities are failing to meet the needs of
their aging systems. In order to achieve full cost pricing,
expenses must not exceed revenue from user fees. So, when
revenue falls short, many utilities must sacrifice needed
infrastructure repairs and upgrades. Twenty-nine percent
of utilities balance their books only by forgoing necessary
maintenance.91
As federal funding evaporates and user bills become the
sole source of revenue, water and wastewater utilities are
facing the difficult choice to either go without necessary
repairs or increase prices for communities that may not be
able to afford them. High prices place a great burden on
working class families, whose water and sewer bills already
constitute a larger percentage of their income,92 and who
often live in older homes with outdated, inefficient plumb-
ing and piping that waste water and drive up utility bills.93
Almost by definition, full cost pricing would increase water
and wastewater prices, and for many families, it could re-
strict access to safe, affordable water. But it rewards private
utilities for inefficient practices such as excessive expendi-

“Full-Cost Pricing” in the Water Industry

What It Is Who Benefits

Concept of ensuring that all costs incurred
in providing a reliable source of potable
water (including sourcing, treatment and
delivery) are reflected in usage fees.
Realization of full-cost pricing ideal would benefit virtually
every corner of the industry, including utilities, meter providers
and general infrastructure players.
Source: Boenning & Scattergood

10
 Food & Water Watch
tures on unnecessary equipment and infrastructure. That’s
why the pricing system will benefit “virtually every corner
of the industry, including Utilities, Meter providers, and
general Infrastructure players,” according to Boenning &
Scattergood.94
The investment firm acknowledges the great public opposi-
tion to full cost pricing that has stopped many municipally
owned systems from implementing it. Publicly elected offi-
cials are responsive to their constituents and “push back on
efforts to increase prices for basic services such as water.”95
Advocates of full cost pricing believe that “a high-profile
system failure would ‘help’ the situation” by changing
public opinion on full cost pricing. If “faulty underground
infrastructure were to interrupt a major city’s water supply
for an extended period,” companies believe that the public
would be less resistant to rate hikes that benefit corpora-
tions.96
Unfortunately, private utilities have not been able to fore-
stall such disasters. United Water, a subsidiary of French
multinational Suez, could not avoid it, and it is one of the
largest water companies working in the United States.
Despite full cost pricing, United Water could not prevent
a break in a main water line that left more than 200,000
people without water in five of the most densely populated
U.S. towns.97
Advocates of full cost
pricing believe that “a high-
profile system failure would
‘help’ the situation” by
changing public opinion on
full cost pricing. If “faulty
underground infrastructure
were to interrupt a major
city’s water supply for an
extended period,” companies
believe that the public would
be less resistant to rate hikes
that benefit corporations.
The Frontier of Water Investing
“It’s hard to imagine anything more integral to our lives
than water. It is the building block of our society and
our very physiology. Wars have been fought over it, and
great poets like Frost, Kipling and Emerson have penned
tributes to it. But for investors, it may be the words of
Benjamin Franklin that prove most prophetic – ‘When the
well is dry, we learn the true worth of water.’”
– David Twibell, president of Private Wealth Management
for Colorado Capital Bank129
Water rights allow the legal private ownership of water
resources.
As available water supplies dry out, corporations are
increasingly interested in actually owning the right to use
water. Water rights are considered the “frontier of water
investing.”130 There are only a few companies that sell
these rights, and they are just now seeking investors for
their water supply. But these corporations eventually will
make profit by selling their water to municipal water sys-
tems during times of need. Because of water ownership
law, most water rights are owned in the West, where
the value of water is expected to swell as it becomes
increasingly scarce.131
One major holder of water rights is Cadiz, Inc., which
owns the rights to the groundwater under more than
46,000 acres of land in Southern California. Because
the land is near pipelines that are already in place, the
company is in a good position to sell water to parched
municipalities.132 Cadiz has petitioned the Metropolitan
Water District of Southern California for sale of water
rights of “surplus water” from the Colorado River Aque-
duct.133,134 Meanwhile, Lake Mead, the river’s natural res-
ervoir, has a 50 percent chance of going dry by 2021.135
If approved, the company would store this water in an
underground aquifer only to sell it back to the district at
a later date.136
During an early morning in February 2007, an aging pipe-
line ruptured and water flooded city streets and apartments
in West New York, New Jersey. Dozens of people, including
14 children, were evacuated, some fleeing on rafts in the
frigid water.98
Rich Henning, a spokesperson for United Water New Jer-
sey, said that many of the pipelines were 70 to 80 years old
and were in working condition, dismissively adding, “[T]his
happened to be one where it was time to go.”99
“One thing is clear,” said Brian Stack, the mayor of Union
City, where lack of water forced school closings. “They have
to do repairs. They have to do maintenance. They can’t just
come and repair when they have a problem.”100
11
 Costly Returns

United Water, however, wanted to recover the amount it
spent over the preceding decade, and just two weeks after
the water main broke, it announced a 28 percent rate
hike.101 Perhaps the company intended to delay repairs until
it had secured its stockholder profits.
Private Utilities Are Inefficient
and Waste Water
High water consumption not only drains water sources,
but it also strains the treatment capacity, delivery system
and conveyance network of water and wastewater systems.
When water consumption increases to a certain level, utili-
ties have to invest in new water sources, treatment plants
and pipelines. By removing these expenses, water conserva-
tion can lower costs and offer relief to families with mount-
ing water and sewer bills.

Not only do utilities have to upgrade infrastructure, they
also must address another imminent disaster – water
scarcity. The U.S. General Accounting Office found that 36
states expect severe water shortages in the next five years.102
The best way to address diminishing water supplies is
conservation. For example, water conservation could cut
water use in California by 20 percent over the next 25 years
even as the state’s population continues to grow.103 Yet
many utilities are still pursuing their expensive desalination
plans.
The private sector has “little incentive to ‘get on board’ with
the EPA’s water efficiency programs,” according to Boen-
ning & Scattergood.104 A water company’s profits depend
on how much water is sold and how much is spent on the
water system. Because water conservation reduces both
the quantity of water used and the costs of operation, it
decreases corporate profits. Instead, private utilities prefer
expensive ways of either reclaiming water – sewage water
recycling or desalination – or diverting it across long dis-
tances via pipelines.

Assessing EPA’s Four Pillars of Sustainable Infrastructure

Because of a funding crisis, utilities are forgoing many needed repairs and improvements to their water and wastewater systems.
To help utilities address these needs, EPA has proposed its “Four Pillars of Sustainable Infrastructure” (see chart for descriptions
of each). Ken Kirk, the executive director of the National Association of Clean Water Agencies, refers to the proposal as the “four
pillows” because “they’re kind of soft.” He believes that the initiative fails to address the funding gap.124

Nevertheless, each of the pillars will have distinctive impacts on community water bills and corporate profits.

EPA’s Four Pillars of Sustainable Water Infrastructure125

Implications for Outlook for private

Pillar Description
Full Cost User fees pay the entire
Pricing cost of providing service.
Water conservation, which
Water
could reduce water con-
Efficiency
sumption by 20 percent.126
Assistance for small sys-
tems to manage resources
Asset
effectively, which could
Management
save around 10 percent on
costs.127
Pollution prevention with
Watershed regional water manage-
Approach ment, which includes
source water protection.
communities
No government funding.
Increased water and waste-
water prices.
Lower system costs and
thus lower water and waste-
water prices.
Lower costs and prices. The
public retains ownership of
their systems – a “take over
defense.”
Lower treatment costs. Re-
duced water prices.
water utilities
Favorable. High costs mean
high profits. Benefits the
entire industry.
Unfavorable. Low costs
reduce profits.
Unfavorable. Small systems
remain viable. Reduced con-
solidation and privatization.
Unfavorable. Reduced need
for expensive treatment
methods. Lower costs and
thus lower profits.128

12
 Food & Water Watch
Some corporations appear so resistant to water conserva-
tion that nothing short of a public takeover can get them to
curtail their wasteful water use.
Albuquerque Bernalillo County Water Utility Authority,
jointly with the city of Rio Rancho, New Mexico, is seeking
to take over a privately owned water system for refusing to
enact conservation measures to ensure it wouldn’t deplete
the regional aquifer. The public utility alleges that when
asked to develop a water efficiency plan, New Mexico Utili-
ties, a subsidiary of Southwest Water Systems – one the
largest U.S. water corporations, serving more than 2 million
people in 10 states – responded by petitioning the state to
allow it to pump six times more water from the aquifer.
Calling the takeover a “last resort,” the public officials
accused Southwest Water of using too much water, being
“irresponsible in its stewardship of a precious resource,”
damaging the local water supply and potentially costing the
public water authority’s own customers more than $50 mil-
lion.105 Without sustainable water use, the cost of extracting
water can rise substantially for all utilities that rely on the
same aquifer.
Indeed, a private utility’s wasteful practices don’t harm just
the people it serves; they can impact water availability for
all the communities that share a water source.
In order for private utilities to implement conservation
programs that could decrease their profits, companies want
some sort of compensation — either revenue guarantees or
a tiered pricing system that allows higher rates.
Under a revenue guarantee system, the private utility would
receive “make-up payments” to offset lost earnings due to
conservation. These payments would come from the very
households that are making the good decision to conserve
water.106 But why would households continue to conserve
water if they are going to have to pay for the water that they
no longer use?
If not guaranteed revenue, companies want to charge
higher rates for the amount of water used at higher vol-
umes. Currently, only 11.5 percent of all water systems use
this tiered pricing structure (called an increasing block
rate). Most water systems charge the same price per gallon
no matter how many gallons are used.107
According to Boenning & Scattergood, the tiered pricing
scheme would make “a market-based approach more palat-
able” to communities because it makes high water users pay
more for their high consumption.108 But it also places the
burden of conservation on the household – not the utility.
As of yet, regulators do not allow revenue guarantees or
the tiered pricing system. And investors are concerned that
there is “no program in place to ‘compensate’” companies
that have to implement conservation programs.109 In places
with water efficiency plans, including South Central Penn-
sylvania, water companies are seeing declines in per capita
water usage and consequently their profits.
Nevertheless, corporations are not worrying too much
about conservation because “regulators are unlikely to
allow water utilities to become ‘victims’ of the conserva-
tion movement.”110 Corporations, in fact, are saved by
other regulatory requirements – including the increasingly
demanding water quality requirements that can necessitate
huge expenditures on new treatment plants.111
13
 Costly Returns
Conclusions
The U.S. water and sewer infrastructure is aging and in
need of repairs. And things are only expected to grow worse
over the next few years.
Unfortunately, cities are finding that federal assistance is
drying up, leaving them to face these expensive problems
alone. As a consequence, households around the country
will have to pay thousands of more dollars over the coming
decades.
But even with money from higher water and sewer rates,
many utilities just do not have enough money to pay the
enormous costs of these necessary improvements. The best
answer for rejuvenating our water infrastructure is a federal
trust fund, something that an overwhelming majority of the
public supports.
Despite this, many in government and the private sector
oppose such a trust fund and, instead, are pushing privati-
zation and ever-higher rates for consumers.
Contrary to their claims, private water utilities are not more
efficient, do not decrease costs and strive for profits above
all else. Indeed, the water barons have a financial incentive
14
to drive up the already high costs of infrastructure improve-
ment.
Across the nation, local governments are implementing wa-
ter conservation programs to reduce wasteful water usage,
and they are working together to protect the lakes, rivers
and aquifers that are the source of the residents’ drink-
ing water. Both these practices, scorned by many private
operators, are helping to offset the financial burden of their
crumbling infrastructure.
While public utilities are making many efforts to repair and
improve their water and wastewater systems, the problem
is too big for them alone.
To keep the nation’s municipal systems strong, Congress
must take action. The country needs a federal trust fund for
drinking water and wastewater.
This funding must not be available to water and wastewater
corporations. Private utilities have a financial incentive to
be wasteful and inefficient. They could try to offset any cost
savings of federal funding through excessive expenditure,
and communities might not see any benefit when their tax
dollars go to water and sewer corporations.
 Food & Water Watch
Endnotes 29
“Drinking Water Infrastructure Needs Survey and Assessment, Third
Report to Congress.” Office of Water, Environmental Protection Agency,
1
“Future Investment in Drinking Water and Wastewater Infrastructure.” Washington, D.C., June 2005, p. 4.
Congressional Budget Office, Washington, D.C., November 2002, p. 4.
30
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 139-140.
2
Lavelle, Marianne. “Water Woes: It’s a Special Commodity Everyone
Takes for Granted.” U.S. News & World Report, June 4, 2007. 31
Office of Water, 2005, op. cit., p. 13.
3
Congressional Budget Office, November 2002, op. cit p. 8. 32
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 68.
4
Ibid. 33
Office of Water, 2008, op. cit., p. 2-1.
5
Connors, Ryan M. and Mince, Christopher R., “Boenning & Scattergood 34
Office of Water, 2005, op. cit., p. 8.
Water Digest: Compendium: July 2006- December 2007,” Boenning & 35
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 139-140.
Scattergood, Inc, W. Conshohocken, PA, December 2007, p. 63.
36
Office of Water, September 2002, op. cit., p. 5-6.
6
Ibid., p. 15.
37
Lavelle, Marianne, op. cit.
7
Long, Colleen. “US water pipelines are breaking.” Associated Press. April
8, 2008. 38
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 15.
8
Lavelle, Marianne, op. cit. 39
Ibid., p. 7.
9
Congressional Budget Office, November 2002, op. cit., p. 8. 40
Ibid., p. 108.
“Reinvesting in drinking water infrastructure.” American Water Works
10 41
“2007 NACWA Service Charge Index Survey.” National Association of
Association, Denver, CO, May 2001, p. 9. Clean Water Agencies, Washington, D.C., March 2008.
“New Poll: Americans overwhelmingly support federal trust fund to
11 42
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 19-20.
guarantee clean and safe water.” Luntz Research Companies (Alexandria,
VA) and Penn, Shoen & Berland Associates Inc. (New York), March 3,
43
Stanford, Melissa, “Briefing Paper: The Texas Model of Regulation of
2005. Water and Wastewater Utilities,” The National Regulatory Research Insti-
tute, Columbus, OH, March 2006, p. 2.
12
“PWF’s 12th annual water outsourcing report.” Public Works Financing,
March 2008, p. 8.
44
“Evaluating Privatization II: An AMSA/AMWA Checklist.” Association
of Metropolitan Sewerage Agencies and the Association of Metropolitan
13
“Analysis of the Use of Contract Operations.” Board of Directors Meet- Water Agencies, Washington, D.C., November 2002, p. 31.
ing, Fairfield-Suisun Sewer District, Jan. 28, 2008, p. 45-64.
45
Stanford, Melissa J. “Small Water Systems: Challenges and Recommen-
14
“Agenda Title: Presentation, Discussion and Possible Action Regarding dations.” National Regulatory Research Institute. Columbus, OH, Feb. 7,
Plan for Operation and Maintenance of the Ellis Creek Water Recycling 2008, p. 13.
Facility.” Water Resources & Conservation, City Council, Petaluma, CA,
Nov. 17, 2007, p. 1-10.
46
Russell-Walling, Edward. “Capital Markets: Infrastructure Projects Pull
in New Investors,” The Banker, August 2007.
15
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 63.
47
Palter, Robert N. et al. “How Investors Can Get More out of Infrastruc-
16
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 15. ture.” The McKinsey Quarterly, February 2008, p. 1.
17
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 17. 48
Connors, Ryan M. “2008 Outlook & 2007 sector performance review.”
Boenning & Scattergood, Inc., W. Conshohocken, PA, Jan. 2, 2008.
18
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 33.
49
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 71-73.
19
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 33.
“Fitch: Escalating Capital Costs May Lead to Consolidation for U.S.
50
20
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 17.
Water Utilities,” Business Wire, Jan. 23, 2008.
21
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 33. 51
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 71-73.
22
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 139. 52
Stuart, Alix. “Water for profit.” CFO, 23 (2): 40-45, February 2007.
23
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 141. 53
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 45.
24
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 155. 54
Ibid., p. 73.
25
Congressional Budget Office, November 2002, op. cit. 55
Tracy, Ryan. “Water company looking to soak up more cash,” The Tren-
26
“Water Infrastructure: Information on Financing, Capital Planning, and ton Times, March 10, 2008.
Privatization.” United States General Accounting Office, Washington, D.C., 56
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 45-46.
August 2002, p. 13
57
Ibid., p. 45.
27
“The Clean Water and Drinking Water Infrastructure Gap Analysis.”
Office of Water, Environmental Protection Agency, Washington, D.C., 58
Ibid., p. 46.
September 2002, p. 5-6.
59
Ibid., p. 46.
28
“Clean Watersheds Needs Survey 2004 Report to Congress,” Office of
Water, Environmental Protection Agency, Washington, D.C., January
60
“Sustainable Water Infrastructure Task Force.” Water Standards &
2008, p. 2-1. Facilities Regulation, Pennsylvania Department of Environmental Protec-
tion, April 16, 2008. Available at:
www.depweb.state.pa.us/watersupply/cwp/

15
 Costly Returns
61
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 155. 93
“Table 2-20: Detailed 2005 American Housing Survey Data Using Cen-
sus 2000-Based Weighting.” Housing and Household Economic Statistics
62
Ibid., p. 159. Division, United States Census Bureau, Jan. 25, 2008. Available from www.
63
Ibid., p. 159. census.gov/hhes/www/housing/ahs/ahs05/ahs05.html.
64
Ibid., p. 111.
94
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 63.
65
Ibid., p. 159.
95
Ibid., p. 63
66
“Transcript of Testimony heard 11/30/04 (Raleigh).” Heater Utilities, Inc.
96
Ibid., p. 63
before the North Carolina Utilities Commission. (Docket W-274 Sub 478), 97
Lavelle, Marianne, op. cit.
Nov. 30, 2004, p. 22-27.
98
Miller, Jonathan. “Main break disrupts 5 towns in New Jersey.” The New
“Order granting partial rate increase and requiring customer notice.”
67
York Times, Feb. 9, 2007.
Heater Utilities, Inc. before the North Carolina Utilities Commission (Docket
W-274 Sub 478), April 18, 2005, p. 27- 30. 99
Lavelle, Marianne, op. cit.
68
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 67. 100
Miller, Jonathan, op. cit.
Association of Metropolitan Sewerage Agencies and the Association of
69 101
Ibid.
Metropolitan Water Agencies, 2002, op. cit., p. 35.
“Fresh water supply: States’ views of how federal agencies could help them
102

70
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 155. meet the challenges of expected water shortages.” U.S. General Accounting
Office, July 2003, p. 5.
Esterl, Mike. “Dry Hole: Great Expectations for Private Water Fail to Pan
71

out; under Fire, Germany’s RWE Plans to Exit U.S. Market; Global Ambitions Gleick, Peter et al. “California Water 2030: An efficient future.” Pacific
103

Thwarted; an Uprising in California Town,” The Wall Street Journal, June Institute, Oakland, CA, September 2005.
26, 2006. 104
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 65.
72
Brown, JM. “Cal Am drops fight over public interest of water buyout.”
Santa Cruz Sentinel, March 11, 2008.
105
“Water utility authority files condemnation suit to protect aquifer and
ratepayers from actions by New Mexico Utilities, Inc.” The Albuquerque
73
Brown, JM, “Cal Am agrees to sell Felton water system for $10.5 million,” Bernalillo County Water Utility Authority, Jan. 19, 2007. Available at www.
Santa Cruz Sentinel, May 31, 2008. abcwua.org/pdfs/Press_Release.pdf.
74
Brown, JM, op. cit., March 11, 2008. 106
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 65.
“Felton prevails in six-year fight to acquire water system from California-
75
“Community Water System Survey. Volume I: Overview.” Office of Water,
107

American Water and German multinational corporation RWE,” Felton
FLOW, May 30, 2008. Available at www.feltonflow.org.
See our website for information on these and other struggles:
76
Environmental Protection Agency, Washington, D.C., December 2002, p. 29.
108
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 65.

www.fwwatch.org/water/private-vs-public/usa.
109
Ibid., p. 65.

77
Stuart, Alix, op. cit.
110
Ibid., p. 65.

78
“Ernst & Young Global Real Estate Center Offers Outlook for 2008,” PR
111
Ibid., p. 65.
Newswire, Feb. 19, 2008. Scharf, Stewart. “Water utilities,” Standard & Poor’s Industry Investment
112

79
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 35. Reviews, March 1, 2008.

80
Ibid., p. 35.
113
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 88.

81
Ibid., p. 37. Cooley, Heather et al. “Desalination, with a Grain of Salt: a California Per-
114

spective.” Pacific Institute, Oakland, CA, June 2006, p. 29.

82
Stanford, Melissa, 2006, op. cit., p. 2. 115
Ibid., p. 39.
83
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 36. 116
Ibid., p. 39.
84
Ibid., p. 18, 23.
“2006 California Water Rate Survey.” Black & Veatch, Los Angeles, CA,
117

85
Ibid. May 25, 2006, p. 5.
86
“Sustainable Infrastructure for Water & Wastewater.” Environmental Pro- 118
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 86.
tection Agency. Accessed on March 24, 2008 at
www.epa.gov/waterinfrastructure/.
119
Ibid., p. 79.

87
United States General Accounting Office, 2002, op. cit., p. 49. Mead, Andy. “PSC approves Kentucky American’s water plant, pipeline to
120

Lexington.” Lexington Herald-Leader. April 25, 2008.

88
Office of Water, September 2002, op. cit., p. 7-8.
Mead, Andy. “Price cap urged on water plant proposal.” Lexington Herald-
121

89
Ibid. Leader. March 21, 2008.
90
“U.S. Water Costs Increase Once Again,” PR Newswire, Sept. 6, 2007. 122
Mead, Andy, op. cit, April 25, 2008.
91
United States General Accounting Office, 2002, op. cit., p. 28. 123
“A better solution: Utilities need incentives to conserve,” op. cit.
92
Office of Water, September 2002, op. cit., p. 18. 124
Lavelle, Marianne, op. cit.
125
“Sustainable infrastructure for water & wastewater.” op. cit.

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 Food & Water Watch
126
Office of Water, 2008, op. cit., p. 3-4. 136
“Cadiz Valley Groundwater Storage Project,” op. cit.
127
Ibid. 137
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 12.
128
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 61-70. 138
Ibid., p. 15.
129
Twibell, David A. “Water May Be Hottest of Hot Commodities for Inves- 139
Ibid., p. 2.
tors,” Boulder County Business Report, 26(23): 43, October 2007 140
Ibid., p. 67.
130
Connors, Ryan M. and Mince, Christopher R., op. cit., p. 90. 141
Ibid., p. 15.
131
Ibid., p. 83. 142
Ibid., p. 67.
132
Ibid., p. 91.
Connors, Ryan M. “Compelling options exist for valuing water utilities
143

“Cadiz Valley Groundwater Storage Project.” Cadiz, Inc. Accessed on

133
despite negative free cash flow; We analyze pros, cons of various valuation
March 24, 2008 at www.cadizinc.com/a/aframeset.html. methodologies,” B&S Water Digest, March 14, 2008.
134
Salladay, Robert. “Gov.’s top aide was paid by developer.” The Los An- Connors, Ryan M. and Mince, Christopher R., “Boenning & Scattergood
144

geles Times, Feb. 10, 2006. Water Digest: Compendium: July 2006- December 2007,” Boenning &
Scattergood, Inc, W. Conshohocken, PA, December 2007, p. 45-46.
135
Barringer, Felecity. “Lake Mead could be within a few years of going dry,
study finds.” The New York Times, Feb. 13, 2008.

17
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